Date Published: 29th June 2022
US investors eye ‘discounted’ investments as football clubs struggle with rising overheads
The March 2022 Football Distress Survey, which has been conducted by business recovery specialist Begbies Traynor since 2012, reports that financial distress is now affecting a total of 32 (44%) of the 72 clubs in the English Football League (down from 34 in October 2021), still double the number before the pandemic.
Player wages rising ahead of inflation, and high levels of debt continue to impact English Football League Clubs more than those in Scotland, where just six clubs (14%) are similarly impacted by financial distress.
The combination of financial hardship and a struggling pound has made UK clubs an attractive investment opportunity for US investors, and just like Chelsea, Leeds United and lower league clubs such as Wrexham, more clubs are likely to see North American investment or outright ownership in the next year.
“Government Covid measures helped clubs survive during lock down, but with rising inflation and increasing player wages, many clubs are staggering along. Next season’s gates and season ticket sales are likely to be impacted significantly by reduced consumer spending as a result of rampant inflation.
“That comes at a time when player wages are rising so much faster than the rate at which ordinary fans’ income is climbing. It’s a more prominent trend in the top tier of English football, but these trends are seen in lower divisions too,” commented Begbies Traynor partner Julie Palmer.
“The squeeze that keeps clubs from building a war chest and cash flow resilience offers an opportunity to overseas investors, especially when Brexit has left the pound so discounted against the US dollar. For some clubs that’s proving to be a welcome lifeline that prevents financial failure and the legacy of points deductions,” she added.
Since March 2021, the number of English clubs displaying signs of financial difficulty has remained relatively steady, climbing from 33 in England and Wales to 34 in October 2021 and back to 32 in the most recent period to 31 March 2022.
“In 2012 when we started this report, an average Premier League player was earning £1.6m and that number has almost doubled to £3.1m. Over the same time average UK wages have risen by just 18%. With players’ wages being such a massive proportion of a club’s expenditure, and the area with the most room for negotiation, that is the natural place to look to make reductions and reset a situation that is now threatening the existence of many clubs,” added Begbies Traynor partner Gerald Krasner.
“In some cases, the huge financial firepower of US investors can help to cushion the blow of relegation and financial hardship, but in any business with a rising wage overhead that is outstripping the general revenue trend, and with a looming consumer spending crisis likely, there will be problems down the road,” he added.
Krasner, who was one of the team of three administrators that successfully sold Wigan Athletic FC out of administration last year, was previously chairman of Leeds United and is one of the UK’s leading football restructuring experts.
Julie is a law graduate who qualified with Price Waterhouse in 1994. Julie joined Smith & Williamson in 1997 and became a partner in 2001. With Mike Stevenson, Julie set up Middleton Partners offices in Salisbury and Southampton, both of which are now part of Begbies Traynor.
Julie is a member of the Insolvency Practitioners Association and is a Fellow of The Association of Business Recovery Professionals. Julie deals with all aspects of Corporate Recovery and turnaround work and takes all form of personal insolvency appointments.